According to the substitution effect, an increase in the price of oranges will:
a. cause consumers to consume fewer apples because more money is spent on oranges.
b. cause consumers to spend more on oranges because a higher price signals that oranges are better than apples.
c. cause consumers to replace some oranges with other fruit that is now relatively cheaper than oranges.
d. leave consumers with less money to spend on all goods.
Question 2
If, due to rising demand, the price of cotton rose 10 percent while the prices of other goods and services rose an average of 15 percent,
a. the relative price of cotton has risen and one would expect the output of cotton to rise as a result.
b. the relative price of cotton has risen and one would expect the output of cotton to fall as a result.
c. the relative price of cotton has fallen and one would expect the output of cotton to rise as a result.
d. the relative price of cotton has fallen and one would expect the output of cotton to fall as a result.
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